Germany: Economic sentiment brightens significantly

5 min

The mood in the German economy improved markedly in August. For the first time since November 2017, the Ifo business climate index did not only rise, it rose significantly to 103.8 points (101.7 in July). What is encouraging, in particular, is the strong increase of three points in the expectation component of the index. German companies had not been as confident as they are today since the beginning of the year. This shows just how much fear of increasing protectionism had weighed on economic senti¬ment in recent months. In late July, the trade conflict between the U.S. and the EU showed signs of easing, at least temporarily. This is likely to have been decisive for the current brightening in economic sentiment. We expect the German economy to continue to grow solidly in the second half of 2018 as the domestic economic conditions for a continuation of the upswing remain very good. This applies in particular to private consumption and investment activity. However, a prerequisite for this assessment is the assumption that there will be no renewed escalation in the trade dispute with the U.S.